2001 Speech
04/17/2001Oil Minister's speech at Yanbu on investment in Madinah ProvinceMinister of Petroleum and Mineral Resources Ali Al-Naimi gave a speech in Yanbu entitled 'National Gas and Economic Growth in the Kingdom' at the Symposium of Investment for the Development of Madinah Province on April 17, 2001

Your Royal Highnesses, Your Excellencies, Gentlemen:

I would like, first, to thank HRH Prince Megrin bin Abdulaziz, Governor of Madinah Province, and HH Prince Saud bin Abdullah bin Thunniyan, Chairman of the Royal Commission for Jubail and Yanbu, for inviting me to participate in this important symposium which I hope will achieve the results sought. I would like, today, to address the Natural Gas Industry in the Kingdom, its contribution to the national economy and its growth at the level of the Kingdom as a whole and in Madinah Province in particular.

Before talking about the present and future role of gas, I would like to highlight the historical development of this industry in the Kingdom which I may say has passed through four main phases and is now entering into its fifth phase.

The first phase started with oil production in the kingdom in 1938 and lasted through 1975, when most of the associated gas and the gas accompanying oil production processes was flared excluding the part that was re-injected for maintenance of oil reservoir pressure or used in the Company’s operations. Visitors of the Eastern Province used to see hundreds of flares burning in the sky. Gas was an important wealth wasted daily. A number of reasons precluded utilization of that resource, perhaps the most of important of which were its poor financial return compared with oil, lack of a national system for gathering and investing gas, reluctance by foreign companies then operating in the Kingdom to invest in this field, the fact that gas tapping technology was less advanced than it is now and that oil prices were lower compared with other energy resources, including natural gas.

By the mid seventies, the second phase started by establishing a mammoth system for gathering natural gas from various fields and wells, treatment and distribution effort were made to establish gas associated industries. Hence the government tasked Aramco with this job at the expense of the state. At the time, the government proceeded to establish the Royal Commission for Jubail and Yanbu’ to develop these twin cities into industrial cities of global importance in petrochemical industries, power generation and water desalination. Such development took place in tandem with the establishment of the Saudi Basic Industries Corporation [SABIC] by the government and Saudi individual investors, which entered in petrochemical projects independently or in joint ventures with several international companies.

Gentlemen,

We still remember the few detractors and their negative regard to gas projects, associated industrial cities and industries, which they dubbed the “white elephant”, meaning an imaginary gigantic thing that cannot practically be achieved. But ambition and foresight confirmed the error of pessimists who see things negatively. The Kingdom, now, is owning the top ten countries in the world’s natural gas utilization and also it is one of the most important producers of petrochemical industries. In addition, gas is being increasingly utilized in power generation and water desalination. This has contributed not only to the growth of the Saudi economy and expansion of its resources, but also enabled meeting the growing demand by the citizens for water and electricity services as well as environmental conservation. I must point out, here, that one of the Kingdom’s priorities is conservation and protection of the environment whether through gas firing in power plants and industries or by using unleaded gasoline, etc ..

The positive results made us suppose that much more work and more brilliant results could be achieved by putting natural gas to better use. This leads me to talk about the third phase of the development of this industry and its relationship with the national economy. In the early eighties, oil production in the Kingdom started to drop down gradually to about 3,000,000 bd and by the mid eighties down from 10,000,000 bd in the beginning of the decade. The net result of this drop in quantity of oil produced was a corresponding drop in gas production since the Master Gas System at that time, as I mentioned before, depended on the associated gas produced by oil extraction. At this point, Saudi Aramco started to produce unassociated gas and linked it to the Master System. By 1984, the unassociated gas was being produced from deep reservoirs in Khuf formation, which enabled us to meet the growing demand for gas on one hand, and on the other hand not to link gas production wholly to oil production. This has required Saudi Aramco to concentrate on unassociated gas exploration and to establish specialized units in its plants for treatment of this type of gas.

It was clear in the late eighties that demand for natural gas in the Kingdom and for different purposes [as feed stock for petrochemical industries or as source of energy for desalination, industries and electricity plants] largely exceeded the expectations. In order to obtain positive results particularly in the long run, it was imperative to deal with gas in terms of exploration, production and distribution in an economically and commercially clear and safe way so that it may contribute in a big way to the development of all aspects of the Saudi economy. Hence, we started to be keenly aware of the importance of gas exploration, especially unassociated gas, as well as the importance of expanding the gas Master Gas System. We were, however, aware at the same time that such expansion should be made on solid economic bases and, thus, we proceeded with what we might call the fourth phase of gas utilization.

Increased production and exploration and expansion of the system capacity require substantial investments that must be built on clear economic foundations that would guarantee the acceptable benefit for the producer and buyer within the framework of the targeted objective, i.e., the sustained economic growth and provision of competitive advantage for the Kingdom through the use of gas in various industries.

As a result of several extensive studies carried out by the Ministry of Petroleum and Mineral Resources and consultations held between all agencies concerned, several major and significant decisions were made, the most important of which is perhaps Saudi Aramco’s upgrading the existing capacity of the Gas System in 1997 from 3.5 billion cubic feet per day to 7 billion cubic feet by 2004, hiking the price from 50 cents to 75 cents per million BTU. Accordingly, this enabled Saudi Aramco to provide gas supplies to petrochemical industries for several years to come in addition to providing Riyadh area with gas for use in power generation projects and other industries and also providing the Eastern Province with all of its gas requirements for electricity, water desalination or various industries and at the same time seeking to use the optimum fuel in Riyadh area and the Eastern Province.

The Kingdom’s Master Gas System project and capacity expansion are considered among the gigantic projects not only in the kingdom but far and beyond. The present expansion project includes, for example, the following:

1. Expansion of the capacity of the three gas plants in Shedgum, 'Uthmaniyah and Berri to process larger volumes of unassociated gas.

2. A pipeline linking the Eastern Province to Riyadh area, which was completed last year, with net result of using gas in electricity generation plants and industrial projects in Riyadh instead of oil. In addition, gas supplies have been extended to a number of electricity and water plants, and industrial cities in the Eastern Province and Riyadh. This has a financial benefit coupled with environment protection since natural gas is one of the cleanliest kinds of fuel and the one that causes less air pollution.

3. Construction of Hawiyah plant for processing unassociated gas at a capacity of up to 1.4 billion cubic feet per day to produce extra quantities of unassociated gas, which is scheduled for completion towards the end of this year.

4. Construcion of the project of extracting ethane gas and natural gas liquids at Berri Gas Plant to increase the existing gas which is used as feedstock for petrochemical industries, which is scheduled for completion towards the end of 2002.

5. Haradh project for treatment of unassociated gas at a capacity of up to 1.5 billion cubic feet per day to meet the increasing demand for gas in the Eastern Province, Riyadh and Yanbu’, which is scheduled for completion in early 2004.

Furthermore, Saudi Aramco has intensified exploration for unassociated gas and has achieved substantial results in this field which can rarely be achieved within such a short period. Several fields of unassociated gas have been discovered in various areas, including the Red Sea, which increased the Kingdom’s gas reserve. Saudi Aramco was able to add about 7 trillion cubic feet per year to the Kingdom’s gas reserve during the nineties. As a result, the Kingdom compensated for it’s gas consumption during the past years and was able to raise its natural gas reserve to approximately 220 trillion cubic feet, thereby placing the Kingdom as the fourth largest country in the global gas reserves. It must be noted here that the average consumption of gas per day in the Kingdom is about 3.4 billion cubic feet. The average of the individual’s daily consumption of gas as a source of fuel in the Kingdom exceeds some industrial countries such as Britain and Germany. In addition, Saudi Aramco is the seventh largest gas producing company in the world.

Gentlemen:

Notwithstanding the fact that the results achieved during the last twenty years in the field of gas exploration, production and utilization are considered large by all standards, however, our objectives and expectations are ever bigger and are pushing us towards new heights. Perhaps the most important of these objectives and ambitions is not only the expansion in gas exploration, extraction and utilization, but also the endeavor to build solid partnerships and alliances with international specialized companies to attract foreign investments and to build integrated industries from gas discovery and production through optimization of the use of this vital resource in electrical power generation, saline water desalination and petrochemical industries, to meet the objective of beefing up the gross national product [GNP], diversification of economic resources, attraction of global investments and, of course, serving the Saudi citizens be it through economic development, increasing individual income, provision of job opportunities or alternatively through provision of desalinated water or electrical power needed for the Kingdom’s sustained development.

From here, we entered the fifth stage which began with reorganizing the Supreme Council for Petroleum and Minerals headed by the Custodian of the Two Holy Mosques. According to its Article of Association, the Council is concerned with resolving oil, gas and hydrocarbon affairs, including for example, the determination and endorsement of policies and strategies related to oil and gas according to the circumstances and national interests.

One of the important aspects of this phase is the meeting of HRH Amir ‘Abd Allah ibn ‘Abd al- ‘Aziz, Crown Prince, Vice President of the Council of Ministers and Head of National Guard with the presidents of major oil companies and inviting them to invest in the Kingdom.

The fifth phase was implemented when the Kingdom placed three major projects for foreign investment in the area of gas exploration, production and processing, as well as linking these initial upstream resources with downstream processes required by the Kingdom which include petrochemical industries, power generation and water desalination. The above three projects cover South Ghawar oil field, Shaybah/ al-Kidan in the Rub’ al-Khali and Northern Red Sea area. All these areas have good, if not excellent, geological formation in terms of gas prospects in commercial quantities. The total acreage of these areas is more than 440, 000 square kilometers, which makes them the largest areas in the world for hydrocarbon investments.

Your Highnesses, Gentlemen:

At this point and having dealt with the development and prospects of gas industry in the Kingdom of Saudi Arabia and its bearing on economic development, I would like to zero in on Medina Area, in particular. As you are all aware, Medina Area boasts the Kingdom’s second largest oil exporting terminal and the second biggest industrial city, that is to say; Yanbu’. The area is home to two major oil refineries.

Within two years from now, Medina Area will be supplied with natural gas from the Eastern Province. For over one year work has been underway to deliver gas from Shedgum, one of the gas gathering sites in Eastern Arabia, to Yanbu’ via a 1200 Km pipeline. Upon its completion in mid 2003, it will carry about 300 million CF of gas per day, which capacity may be expanded in the future to 1billion CF of gas per day, if needed.

Availability of dry gas in Yanbu’ will release a large quantity of ethane, which is currently used as fuel, so that it can be utilized as a feedstock for petrochemical factories and so that it can meet the fuel needs of the new industrial projects, as dry gas is currently being allocated for three new industrial projects in Yanbu’.

I must point out that this pipeline is parallel to another pipeline carrying oil from East to West of the Kingdom its, and it is also parallel to the natural gas liquids pipeline which we are now studying expanding its capacity to provide more feedstock for the petrochemical projects in Yanbu’.

Your Highnesses and audience:

We have no doubt in our mind, that the challenges are immense and diverse; the biggest of all for us here in the Kingdom, is the sustained economic development in at a rate that exceeds that of population growth, establishment of a sturdy industrial base capable of competition at the international level and taking advantage of the Kingdom’s relative competitive edge of the hydrocarbon wealth to achieve immense economic growth throughout the Kingdom areas in a manner that enhances Saudi nationals’ qualification, employment, productivity and revenue.

Of these challenges, is the attraction of veritable and serious foreign investments in exploration and production of gas and involvement in subsequent operations in this field including power generation, petrochemical industries, desalination, etc….

There is great hope that we can overcome these challenges and achieve the desired goals. Our goal is obvious and work is underway in several tracks. We have identified our path and we are treading it step by step. This meeting is but one of these steps that will contribute to the identification and achievement of the desired orientation.

Thank you. I look forward to seeing you in similar fruitful gatherings.